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Aviation & Flight InformationUnderstanding Craft
Insurance Policies
by:
Greg Reigel
My Policy Says What?!: Understanding An Craft
Insurance Policy
© 2004 Reigel & Associates, Ltd./Aero Legal Services. All rights reserved.
Many states require that owners and/or operators of craft
have insurance covering their craft
and operations. At a minimum, states ordinarily require third-party
liability coverage. This applies to injuries to third-persons that result from operation of your aircraft. Additionally, if your craft
is pledged as collateral for
financing, the loaner wish require that you have hull coverage and/or replacement value insurance to insure the value of the craft
collateral.
Obtaining the Policy
So, how do you receive craft
insurance? Typically, you apply for craft
insurance through an insurance agent or broker who represents an insurance institution or
companies that provide craft
insurance policies. The insurance institution then reviews the application and does any additional investigation necessary for it to
assess its risk in providing you with insurance for your craft
or operations. Its risk is the probability
that it may have to pay out on a claim against your
policy.
In exchange for its acceptance of risk, the insurance institution charges you a premium. The figure of that premium is a direct product of the figure of risk that the
insurance institution is presumptuous
by extending coverage to your craft
or operation. The greater the risk, the much dear the insurance coverage wish be. In
some cases, the insurance institution may not be willing to accept a particular risk for any price.
Factors that affect the underwriting decision include type of aircraft, pilot qualifications (e.g. total time, time in type, pilot certificates/ratings), nature of the operation
(e.g. pleasure, business, Part 91 or Part 135) and base of operations. General aviation policies can include non-commercial pleasure and business use under FAR
Part 91 or commercial use under FAR Part 135.
Reading the Policy
When an aviation insurance policy is issued, it represents a contract between you and your insurance company. As long as you obey
with all of the terms and
requirements of the policy, your insurance institution wish provide you with coverage. If you fail to obey
and a claim arises, you may find yourself without
coverage.
But, what does the craft
insurance policy really say? Well, as a practical matter, it is quite common that pilots and operators do not see their policies. Sure,
they may review the declaration page to confirm that the correct parties are named and that the appropriate coverage limits are in place, but often times that is as far
as it goes. Sometimes an owner or operator may even as ask his or her agent to explain several of the policy’s terms.
Unfortunately, the policy contains quite a bit much information of which the pilot or operator of necessity
to be aware of to ensure that he or she complies with the terms of
the policy. A thorough review of the policy is several prudent and recommended.
This review should begin with the Data Page or Declaration Page. First, confirm that the craft
is right known
and that the appropriate owner and any
additional insured parties are included. Likewise see the coverage limits to do sure that you have the limits for which you are paying.
Aircraft Damage Coverage
The typical craft
insurance policy wish include several craft
damage coverage, as well as craft
liability coverage. The craft
damage coverage applies when
your craft
sustains damage (e.g. bent metal, broken windows etc.). This coverage comes in two flavors: In-flight/In-motion and
Not-in-flight/Not-in-motion.
As you may have guessed, in the 1st instance your craft
wish be insured for damages it sustains spell it is in use: moving under the power of its own engine,
whether taxiing or flying. In the latter instance, you craft
wish only be insured spell it is place on the ramp or in the hangar. This coverage is less expensive
because it presents far less exposure to the insurance company. It wish only have to pay a claim if thing
happens to your craft
spell it is standing still and not
in use. An craft
owner may want this limited coverage once
the craft
is going to be keep and unused for a period of time.
It is likewise possible to purchase “all risk ground and flight” coverage. This coverage protects you whether the craft
is moving or not. However, a policy with this
coverage wish likely be much dear than a policy that is either In-flight/In-motion or Not-in-flight/Not-in-motion.
The craft
damage coverage provides for transportation of the craft
to and from the location at which the repairs are made, any related storage charges and the
actual repair of the aircraft. However, most policies wish likewise exclude coverage for damage sustained by your craft
as a result of governmental seizure, resulting
from recovery or social control
of a lien against your craft
or damage that is due to ordinary wear and tear, deterioration or age.
Assuming the damage to your craft
is covered, you should see your policy language to determine whether it contains any specific restrictions or requirements
relating to process
of your claim, who performs the repairs, wherever
they are performed and even as how they are to be performed. Just because you have
insurance coverage, this does not mean that you have bill of fare blanche for having your craft
repaired.
Aircraft Liability Coverage
Aircraft liability coverage protects you from liability or responsibility to third-persons for damages they may suffer resultant from the operation of your aircraft. The
coverage requires that the insurance institution several indemnify and defend you against such claims. Indemnification means that if you are responsible for the damage
to a third-person, the insurance institution wish pay the third-person directly, up to the policy limits, the figure for which you are responsible.
The duty to defend means that the insurance institution wish pay for your defense cost if you are sued by a third-person alleging that your operation of your aircraft
caused damage. The insurance institution wish hire an attorney, ordinarily experience in aviation law, to represent you and defend against the claims. Given the
complexity and cost of aviation litigation, this benefit alone can be worth a substantial figure of money and may even as exceed the figure of money really paid by
the insurance institution to indemnify you.
Your policy wish always have a maximum limit for liability coverage that can be either “sub-limit” or “smooth” coverage. An example of sub-limit coverage is a policy
that provides for $1,000,000 per occurrence and $200,000 per passenger. This does not mean that you have $1,000,000 to pay all claims.
Rather, the insurance institution wish pay a maximum of $1,000,000 per occurrence, but wish only pay each rider up to a maximum of $200,000. Thus, for an
accident in which only one rider is injured, the insurance company’s maximum exposure is $200,000, exclusive of any amounts it spends on your
defense.
On the else hand, smooth limit coverage of $1,000,000 per occurrence wish provide up to $1,000,000 of coverage regardless of the number of passengers. This
coverage presents a greater risk to the insurance institution since it could have to pay the full policy limits even as if only one person is injured. As a result, greater risk
means that the premium for this coverage is going to be much dear than the premium for a policy containing sub-limits.
Policy Definitions
When you see an craft
insurance policy, you need to pay special attention to the definitions section. Many an of the terms used in the policy have specific definitions
that are several from a lexicon definition or common usage for that word.
Examples include the definition of “accident” which is often defined as a “sudden and unexpected event resultant in bodily injury, death or property damage”. This is
different than the definition of accident contained in NTSB Rule 830 and is likewise much specific than a lexicon or common usage definition of the word.
Another example is the definition of “commercial operations” or “commercial purpose.” An insurance policy’s definition of this term is ordinarily several from, and in
some cases may be broader than, the FAA’s or IRS’s definition or a lexicon definition.
These are simply two examples. However, remember that the craft
insurance policy is a contract between you and the insurance company. Some
you and the
insurance institution in agreement to the policy definitions once
you paid the premium and the insurance institution issued the policy. As a result, several you and the insurance
company wish be bound by those definitions.
Coverage Exclusions
Your craft
policy wish likewise contain exclusions. Exclusions define circumstances in which the insurance institution wish not provide you with coverage for operation of
your aircraft. An craft
insurance policy ordinarily includes several specific and general exclusions.
Specific exclusions arise once
you assume additional liability (e.g. you sign a contract that indemnifies or holds causal agency else harmless for damage they cause),
damage occurs to your own property or injury occurs to members of your family. The policy may likewise specifically exclude coverage for your own medical expenses
or for your operation of an craft
that you do not own.
Depending upon the state in which the craft
is based, general exclusions can result in denial of coverage regardless of whether they directly caused a particular
claim. These exclusions wish preclude coverage for operation of your craft
in commercial operations (as defined by the policy, not necessarily the FAA or IRS),
using your craft
to commit unlawful acts, damage caused by war or terrorist act
or if your craft
is operated by a pilot that is not named as an insured on the policy
and does not meet the open pilot qualifications.
Who Is Covered
Assuming no exclusions are applicable, the policy wish provide coverage to each person named as an insured under the policy and to pilots who meet the “open pilot”
requirements. As a threshold matter, each pilot operative
the aircraft, whether named insured or qualifying under the open pilot provision, wish need to possess the
appropriate pilot and medical certificates and meet all currency requirements for operation of your aircraft.
The open pilot provision extends the coverage of your craft
insurance policy to a pilot operative
your craft
who is not a named insured on your policy. The
provision sets out total time, time in type and training requirements that the anonymous pilot must meet in order for the pilot to be covered under the policy. Generally,
if those requirements are met and the pilot is operative
your craft
with your consent, your insurance coverage should extend to that pilot.
What You Can Do
The complexities of craft
insurance can seem daunting. But, what can you do to protect yourself? The first, and one of the most important things you can do, is to
read your insurance policy. If you have questions regarding terms or coverage talk to your insurance agent or contact an aviation professional person
who is familiar with
aviation insurance matters.
Once you understand the policy, do sure you abide by the policy and obey
with its terms and requirements. It does little sense to spend substantial amounts
of money on insurance premiums and then place your coverage in peril by doing or allowing thing
your policy prohibits.
Next, document your operations. What do I mean by that? Simple: Support nice records. Do sure your pilot record book
is up-to-date and current. If you take
your pilot record book
with you once
you fly, do copies of the pages containing your satisfaction of the FAR currency requirements and support the copies in a safe
place.
This way, if thing
happens to your pilot record book
and your insurance institution or the FAA later question your currency, you wish have back-up proof that you
were current for your flight. Though not as critical, you may likewise want to support a photocopy of your pilot certificate(s) on
with your record book
records.
Finally, you should use this same procedure for your craft
and engine logbooks. If you must take them with you in the airplane, do copies and support them in a
safe place. In this instance, you may want to do a full set of copies of the record book
entries, rather than simply the pages showing the aircraft’s current airworthiness.
An craft
that contains record book
entries for all of the activity ever performed on the craft
is worth much to a potential customer than if those records are incomplete
or missing.
These simple steps can prevent possibly
costly disputes down the road. It’s been same
that the better insurance is the insurance you ne'er
have to use. That may be,
but if you take these steps, you should have greater peace of mind that your insurance wish be there if you need it.
Just about THE AUTHOR
Greg is an aviation attorney, author and holds a commercial pilot certificate with instrument rating. His practice concentrates on aviation litigation, including insurance matters and creditor’s rights, FAA certificate actions and aviation related transactional matters. He can be reached via e-mail at greigel@aerolegalservices.com or check out his website at www.aerolegalservices.com.
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